German Industrial Production and Producer Prices Support ECB Rate Cut Bets

On Friday, the German economy was in the spotlight. German industrial production and producer prices garnered investor interest.

German Industrial Production

Industrial production increased by 1.0% in January after sliding by 2.0% in December. Economists forecast industrial production to increase by 0.6%.

According to Destatis,

• Production in construction jumped 2.7% month-on-month after sliding by 3.1% in December.
• The chemical industry (+4.7%), food industry (+5.9%), and machinery maintenance and assembly (+11.1%) contributed to the increase in headline production.
• However, the auto sector saw production tumble by 7.6% month-on-month.
• Production in industry, excluding energy and construction, increased by 1.1%.
• There were also increases in the production of consumer goods (+4.0%) and intermediate goods (+4.4%).
• However, production of capital goods declined by 2.1%, with energy production down 3.7%.
• Industrial production declined by 1.5% from November 2023 to January 2024.
• Year-on-year, industrial production fell by 5.5%.

German Producer Prices

German producer prices increase by 0.2% month-on-month in January after declining by 1.2% in December. Economists forecast producer prices to increase by 0.2%. Notably, producer prices increased for the first time in five months.

Producer prices were down 4.4% year-on-year in January after declining by 5.1% in December. Economists forecast producer prices to fall by 6.6% year-on-year in January.

According to Destatis,

• Energy prices slid by 11.7% year-on-year in January, contributing to the less marked decline in producer prices.
• Prices for non-durable consumer goods increased by 1.1% year-on-year, with durable consumer goods prices up 1.6%.
• Capital goods prices increased by 3.0%, with prices of motor vehicles, trailers, and semi-trailers (+2.4%) contributing to higher prices for capital goods.

German Economy and the ECB

Economic indicators from Germany continued to signal a Q1 2024 economic recession. The month-on-month numbers aligned with recent trade data from Germany. German trade data signaled a marked improvement in the demand environment, contrasting with factory orders.

Nonetheless, the latest data supported the ECB Staff revisions to inflation and growth forecasts and a June ECB rate cut.

EUR/USD Reaction to German Economic Indicators

Before the data from Germany, the EUR/USD fell to a low of $1.09422 before rising to a high of $1.09557.

However, in response to the numbers, the EUR/USD rose to a high of $1.09510 before falling to a low of $1.09435.

On Friday, the EUR/USD was down 0.04% to $1.09438.

Next Up

On Friday, Eurozone GDP and employment figures for Q4 will need consideration. According to 2d estimates, the Eurozone economy stalled in Q4 after contracting by 0.1% in Q3. Based on preliminary numbers, Eurozone employment increased by 0.3% quarter-on-quarter in Q4. In Q3, employment increased by 0.2% quarter-on-quarter.

However, the US Jobs Report will draw more interest. Softer labor market conditions would support bets on an H1 2024 Fed rate cut.

Economists expect nonfarm payrolls to increase by 200k and an unemployment rate of 3.7%. Significantly, economists predict average hourly earnings to ease from 4.5% to 4.4% year-on-year in February.

Beyond the numbers, investors must consider central bank commentary.